European Commission Vice President responsible for Industry and Entrepreneurship

“The Path to Growth: For a Business Friendly Public Administration”

Opening speech / Brussels

28 October 2013

President, [ Dailis Alfonsas BARAKAUSKAS ]

Ministers,

Ladies and gentlemen,

It is a great pleasure for me to speak to you today.

This Conference addresses a crucial issue: the role of public administrations in helping European business and boosting economic growth.

To attract investment and re-industrialize Europe, a truly business friendly environment is essential.

So Governments, at EU, national and regional level, must make sure public administrations are the number one ally of industry, providing an efficient high-quality public service.

The legislative framework must also be simple and predictable to boost innovation and competitiveness.

Since 2011, in its Country-Specific-Recommendations, the Commission has been asking Member States to improve their public administration.

However, the latest Competitiveness Report shows that government ineffectiveness is still one of the main obstacles for business. There have been improvements in some member States, but a number of countries have also fallen in the rankings.

Let me highlight some of the most important issues hampering businesses today.

I. Releasing the potential of our entrepreneurs

In Europe, in addition to big industry, we have 23 million entrepreneurs with small or medium-sized businesses. These are, above all else, men and women with a dream – a vital force focused on ideas, projects, hard work and risk, in order to innovate and generate added value, wealth and employment. They are the true lifeblood of the economy and society.

To discourage or even block this force is to cut off employment and growth.

This is why we need a genuine change of culture, so that public administrations see entrepreneurs not as subjects or adversaries, but as individuals who play a positive role that benefits society, even though their aim is to make profit.

In many EU countries, we are still a long way from achieving this vision.

Public officials often view entrepreneurs with suspicion, if not open hostility, regarding them as potential rule-breakers who take advantage of the common good and exploit the work of others.

We must move beyond this view. We have to rebuild the relationship between businesses and public administrations, starting from a seemingly self-evident observation: without entrepreneurs there can be no employment or wealth, and thus no resources for the State.

How much does the deadweight of inefficient public administration hinder the creation and growth of businesses and employment?

A lot, if we think, for example, of how long it takes to:

obtain a licence for the construction sector or for any type of economic activity;

start a business or receive a payment from the State;

recover a debt, enforce a contract or complete insolvency proceedings;

build infrastructure or put a contract out to tender.

Not only does this time often translate into huge additional costs for businesses, but there are also direct costs:

first, the anomalous tax burden on businesses and employment, often linked to a bloated public administration that spends public money badly;

second, the innumerable bureaucratic procedures that represent an unsustainable burden, particularly for SMEs, not least in terms of personnel use.

I have in mind here the vast number of essentially pointless and confusing procedures that are not justified by the protection of any general interest, but instead result from internal organisational problems, power struggles and bad legislation.

Although environmental impact assessment and consumer protection are clearly sacrosanct, this is no excuse for an endless proliferation of bureaucratic procedures or bodies with veto powers, nor spiralling response times.

If we want to return to growth of more than zero-point-something, become an attractive investment location and reduce public debt, the starting point for all reform is to make public administrations more efficient.

II. Let’s start with start-ups

Anyone deciding to take the risk of starting their own business should receive all possible support. This is why in May 2011 the Competitiveness Council, at the Commission’s suggestion, set a target of three days and 100 euro to start a business.

Although there has been some progress, unfortunately only three Member States meet these criteria. The EU average for starting a business is still six days – with some countries requiring as many as 14 days – and the average cost is 370 euro.

This is why, to improve the functioning of the single market, I intend to propose European legislation to oblige Member States to meet certain timescales and costs for business start-ups.

III. Too much taxation

In many EU countries, the tax burden on companies has reached levels that are counterproductive for public finances. Taxation above a certain threshold discourages entrepreneurial activity, which is why tax revenue falls even though taxes have been raised.

It is not just the tax burden that is unsustainable: tax collection procedures are often unnecessarily complex. Just consider that it can take up to 50 working days to complete an income declaration.

There has been some improvement, especially with the introduction of online procedures that have cut the time required by 7 %. But there is still much that can and should be done in order to fully digitalise dealings between businesses and the State, including using EU structural funds.

IV. Snail-paced civil justice

One of the biggest deterrents to investment is the glacial speed of civil justice in certain Member States.

The EU Justice Scoreboard presented by the Commission on 27 March pulled no punches.

While settling contractual disputes in the EU takes on average 547 days and requires 32 different procedural documents, and insolvency proceedings take around two years, there are significant differences between countries. In certain Member States, these figures are three or four times higher.

Italy, for example, comes bottom of the ranking for the time needed to resolve commercial cases and the number of pending cases, with a mediocre use of new information technology. It takes 564 days to complete the initial court case, rising to 1210 days when all levels of appeal are included, despite investment in the judicial system (0.2 % of GDP) similar to that of other EU countries.

This has devastating consequences for citizens, businesses and economic growth. Slow justice removes the certainty that contractual obligations will be enforced and the courts become the refuge of those in the wrong who wish to make the other party give up.

The cost of these inefficiencies equates to a drop in GDP of between 1 % (as indicated by the Bank of Italy) and 2 %. According to Confindustria, reducing these timescales by 10 % would result in a gain of almost 1 % of GDP, or 13-14 billion euro per year.

The European Commission, the OECD and the World Bank all agree that slow court cases are not attributable to the number of judicial officials per inhabitant or levels of investment, but rather to organisational problems and a lack of digitalisation.

This is also the line taken in the Recommendations made by the Commission to various countries during the European Semester.

V. A digital revolution in the relationship between the State and businesses

Many Member States are not yet fully exploiting the vast potential of new information technologies to improve the relationship between public administrations and businesses. Only half of EU countries have made e-government services available to businesses.

Recent estimates show that intelligent and large-scale use of these technologies would result in cost savings of up to 20 %, i.e. several hundred billion euro that could be used to lower taxes and/or reduce public debt. And that’s without taking into account the enormous economic benefits for businesses of shorter timescales and simplification.

This is why digital services are at the heart of the Europe 2020 growth agenda, so much so that a European summit has just been held to accelerate the technological process that forms the basis for our future competitiveness.

As the main providers of business services, public administrations must therefore modernise by investing in information technology, including by making better use of EU funding.

VI. Innovation and public procurement

Public procurement accounts for 19 % of EU GDP. It can therefore play a formidable role in encouraging firms to innovate and find new markets.

Unfortunately, the latest Innovation Scoreboard revealed that less than 5 % of companies had sold innovative products to the public administration, far fewer than in the USA.

To encourage innovative procurement, we have set up public administration clusters that work together to draw up tender specifications for innovative products, partly using EU funds.

To this end, we are co-financing a European online platform to offer companies, particularly SMEs, a guide to innovative public procurement. A first paper version of the guide will be distributed today.

I would also like to take the opportunity today to launch the first European award for innovative procurement.

I would encourage the representatives of public authorities that have recently launched an innovative procurement project to submit their nominations by March. The award will be presented in May.

VII. Quality legislation

Above all else, reducing the burden on businesses means legislating less and legislating better. At all levels.

The Commission must lead by example. This is why we have added a compulsory competitiveness test that applies to all new proposals for EU legislation.

Before submitting a new directive or regulation to the legislature, we must ask ourselves whether it is really needed and what costs it imposes on businesses, particularly SMEs.

This analysis must also take into account cumulative effects. We cannot burden sectors facing increasing global competition with a constant stream of new rules that, when taken together, result in unsustainable costs and subsequent relocation risks.

I have already initiated tests for cumulative effects in the steel and aluminium sectors, the results of which will be presented on 6 November. New tests for the chemicals and ceramics sectors will start shortly.

I would also like to thank President Barroso for the legislative simplification measures introduced on the basis of the excellent work of the Stoiber group. The REFIT programme, which follows on from our consultation on the 10 legislative acts that place the greatest burden on businesses, is a key initiative for reducing the impact of EU legislation on business competitiveness.

Ever since the Small Business Act (SBA) came into force in 2008, the Commission has been working to reduce administrative burdens.

The cost to businesses of complying with EU legislation is calculated to be around 124 billion euro. We have achieved the objective set out in the SBA of reducing this burden by 25 %, with an estimated saving – particularly for SMEs – of 30.8 billion euro But we want to go further. This is why we have already proposed simplification measures affecting 33 % of this burden, for total annual savings of over 41 billion euro.

For example, simply exempting micro businesses from accounting obligations under EU directives has so far generated annual savings of 6.5 billion euro. Electronic invoicing, the simplification of tax credit reimbursements, the ‘one-stop’ system for administrative procedures and fewer online-sales rules are worth as much as 26 billion euro.

Looking beyond the efforts being made at European level, in all fairness it should be recognised that many restrictions are the result of poorly implemented directives or national and regional rules. So the habit of making Brussels the scapegoat for all blame is not helpful.

In Italy alone, complying with administrative obligations costs businesses more than 26 billion euro. Eliminating half of this would result in potential additional growth of 1 %.

The initiatives introduced by some Member States, including Sweden, the United Kingdom and Italy, to implement robust measures to simplify the legal framework for businesses are therefore to be commended. I hope that all EU Member States will make similar efforts.

Conclusions

Despite some weak signs of recovery, the EU has not yet seen off the crisis. The industrial base continues to shrink, from 15.5 % last year to 15.1% today.

The employment situation is dire, with half of all young people unable to find work in Greece, Portugal, Spain and southern Italy.

A far stronger recovery is needed to reverse this trend.

Despite the strong action taken by the Commission to relaunch competitiveness and the reforms by the Member States, there are still deep structural imbalances. The productivity gap remains wide, with countries hampered by punitive taxation, limited capacity for innovation, high energy costs and inadequate infrastructure.

However, it is precisely the different levels of efficiency in public administration and civil judicial systems that have the greatest impact.

We look forward to the meeting of the European Council in February, when industrial policy will once again be discussed at the highest level after many years.

This is why we are working on an Industrial Compact, in the context of Europe 2020, which will allow us to increase the pace of reform at both EU and national level. This is essential if we want to attract fresh investment in industry.

I have already started discussions with the 28 EU Ministers for Industry, stressing both the priority actions and the need to strengthen governance.

The first problem to be addressed is that of turning public administrations into true allies of business.

Without efficient administration, we are destined to fail in our efforts to build a system of modern networks, reduce energy costs, spend EU funding more wisely and produce research and training more geared to the market.

The results achieved by the Late Payment Directive, which sparked a real revolution in many Member States by freeing many businesses from their subjugation to the public sector, show us that the EU can play an even more important role in the context of a more integrated and efficient single market.

This is why I am considering a new Small Business Act that contains not just recommendations, but legally binding requirements. These would include fixed timescales and resources for starting a business, obtaining a licence or recovering a debt.

Finally, I have in mind EU legislation that would give a second chance to honest entrepreneurs who have gone bankrupt and would simplify the transfer of companies.

In conclusion, I want to leave you with a message of hope. Europe boasts extraordinary potential, above all in human capital and entrepreneurship. If we can provide this potential with even more space and freedom by eliminating the problems restricting competitiveness, starting with overly intrusive and inefficient public administrations, we will overcome the crisis and return to growth and job creation.